The War of the Wages: Obama Moves Left on the Economy to Change the Subject

Zuma Press

From ‘Hope and Change’ to “Hope we can Change the Subject’         Zuma Press

For all of their mutual public admiration, Presidents Clinton and Obama react differently to political trouble. Bill moved to the middle, while Barack always moves left. So it’s no surprise that Mr. Obama is responding to his ObamaCarerollout slump by doing his best Elizabeth Warren imitation.

Mr. Obama returned to his favorite theme of rising income inequality on Wednesday, which he called “the defining challenge of our time.” He ought to know since few Presidents have done more to increase inequality than he has. Median household income has fallen since the economic recovery began, while the rich who own capital assets have done very well thanks to the Federal Reserve’s focus on reflating stock and home prices. Mr. Obama is the Chief Economist of Nottingham posing as Robin Hood.

Editorial board member Steve Moore on why Congress shouldn’t hike the federal minimum wage to $10.00 from $7.25.

The President’s political purpose here is what the pros call rallying your base. Many Democrats are as dismayed as Republicans at ObamaCare’s rollout, so the White House wants to change the subject and give MSNBC viewers something else to debate. Mr. Obama didn’t have much new to offer that would help the economy or the middle class, so instead he’s decided to escalate that hardy liberal perennial, the minimum wage.

Earlier this year he proposed an increase to $9 an hour from the current $7.25. That has gone nowhere on Capitol Hill and Mr. Obama is less popular than he was, so the White House response is to raise the bidding to $10.10. If his popularity keeps falling, Mr. Obama will be demanding $15 by next November.

One liberal highlight from last month’s elections was when 60% of New Jersey voters approved a state minimum wage hike to $9.25 an hour. Unions now plan to put wage increases of $9 to $10 an hour on the 2014 ballot in at least five states—Alaska, Idaho, Massachusetts, Missouri and South Dakota. The President recently endorsed the bill by Iowa Senator Tom Harkin and Rep. George Miller of California to raise the wage floor to $10.10 by 2015 with automatic indexing for inflation thereafter. Look for Harry Reid to call it up for a Senate vote next week.

Democrats are even proposing to more than triple the wage floor for the nation’s three million or so workers who receive tips as part of their pay. The minimum (not counting their tips, which can often average $10 to $20 an hour) would rise to just over $7 an hour from $2.13 an hour now. This could hammer the job market for waiters, waitresses, bartenders, bus boys and valets. A 2012 study in the Southern Economic Journal concludes that “it is unusual to find any other occupation where cash wages have a stronger negative effect” on hiring than for tipped workers.

These increases would all be phased in through 2015, which is when ObamaCare’s employer mandates finally kick in. This creates a double burden for small businesses with more than 49 employees. If these employers don’t provide health care and instead pay the penalty of $2,000 per full-time employee, the cost of a minimum-wage worker would rise by the equivalent of another $1 an hour. Workers who used to cost $7.25 an hour would cost closer to $11.10 in 2015. If employers start to provide ObamaCare-approved health benefits, the cost of hiring an additional minimum-wage worker would rise further.

Question: Where are employers in the low-margin Obama economy going to find this extra money? George Miller and the unions say businesses can afford it. But when was the last time they met a payroll?

Our readers are familiar with the mountains of evidence that minimum wages lead to fewer workers hired. Small minimum-wage hikes have small negative employment effects, but raising a worker’s cost by 50% or more risks pricing many low-skilled workers out of the job market.

Economist David Neumark, an expert on minimum-wage economic studies, says that an economic rule-of-thumb is that every 10% increase in the minimum wage reduces teen employment by about 1% to 3%. In October the U.S. teen jobless rate was 22.2% and for black teens it was 36%. The Obama minimum wage combined with the health mandate could mean up to a 10% reduction in jobs for the poor and young. Liberals must care deeply about inequality because their policies do so much to increase it.

Not that this matters to desperate Democrats, who are looking for any alternative to debating ObamaCare and see that a higher minimum wage polls well. Steve Israel, who runs the Democratic Congressional Campaign Committee, is telling donors that the minimum-wage issue will lift liberal voter turnout in 2014, help Americans forget about losing their health insurance, and save the jobs of imperiled Democrats. If that means fewer jobs for the young and least skilled, so be it.

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4 Comments on “The War of the Wages: Obama Moves Left on the Economy to Change the Subject”

  1. […] Pundit from another Planet For all of their mutual public admiration, Presidents Clinton and Obama react differently to […]

  2. […] The War of the Wages: Obama Moves Left on the Economy to Change the Subject ( […]

  3. […] The War of the Wages: Obama Moves Left on the Economy to Change the Subject ( […]

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